The Federal Open Markets Committee (FOMC) held its short-term policy interest rate steady at its last meeting of the year on Wednesday (12-13-23). It was the fourth pause recorded in 2023.
Federal Reserve Chairman Jerome Powell said that while inflation remains ‘elevated,’ the Fed anticipates making three 25 basis point rate cuts in 2024, a signal to Investors that hikes are over and this news is already causing some reduction in rates.
The bond market responded in kind, with the 10-year Treasury yield falling to 4.0% late afternoon on Wednesday, its lowest level since late July.
Mike Fratantoni, the chief economist of the Mortgage Bankers Association, stated. “This is good news for the housing and mortgage markets. We expect that this path for monetary policy should support further declines in mortgage rates, just in time for the spring housing market. We are forecasting modest growth in new and existing home sales in 2024, supporting growth in purchase originations, following an extraordinarily slow 2023.”
In 2023, the Fed hiked the benchmark federal funds rate by a quarter-point at four meetings, most recently in July.
Rate relief in 2024
“The Fed’s projections for 2024 will continue to anticipate a normalization in monetary policy in the year ahead,” said Realtor.com Chief Economist Danielle Hale.
Hale has forecast mortgage rates to ease further in 2024 as inflation improves and Fed rate cuts draw closer.
“Mortgage rates could near 6.5% by the end of the year, a key factor in starting to provide affordability relief to homebuyers,” Hale said.
Among the first customers to benefit from reduced interest rates would be those who are currently making payments on mortgages with high rates.
According to TransUnion data, since January 2021, there have been 3 million new mortgages originated with interest rates of 6% of higher, the total balance of which being over $1 Trillion. The monthly payments of each of these high interest mortgages averages $2,201.
If interest rates dropped to even 5.5%, it could result in significant savings for homeowners, as refinancing at that rate could result in an average monthly payment of $1,917 for them, a reduction of $284 every month, said Michele Raneri, VP of U.S. research and consulting at TransUnion. “This would represent nearly $300 a month that these homeowners would be able to use elsewhere in this continued high cost-of-living environment in which every dollar counts.”
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